As Logistics Property Co. closed in on a deal to buy land near Chicago’s Goose Island in 2022, the firm had one major complaint: The well-located site wasn’t big enough to hold more than one big warehouse — or so they thought.
Turns out, it could contain more than one huge storage space, once the Chicago-based developer opted to essentially develop two distribution centers atop one another at 1237 W. Division St.
In the first project of its kind in the city, Logistics Property is in the late stages of constructing a modern, vertical warehouse supported by a series of ramps big enough to accommodate cars, delivery vans and trucks, and even full-sized semis — on more than one floor. The move throws down the architectural gauntlet to rival area developers, raising the bar on what can be done with warehouses.
Just months before the project is completed, and with no tenants signed yet, the fate of the vertical warehouse project is sure to be closely watched by rival developers, in Chicago and across the country. An expected completion in September comes as demand for U.S. industrial space remains far above typical levels, but below record levels seen earlier in the pandemic.
“It’s a collaborative market where you spend a lot of time with competitors,” said Aaron Martell, a founding partner and executive vice president at Logistics Property. “Everyone has a dog in the fight. Our dog is the biggest dog in the fight. I think people want to see it succeed because they want to see more of it.”
Multistory distribution centers are a phenomenon seen for decades in densely populated areas of Asia and Europe, but only in the past few years has it reached U.S. cities such as Seattle, New York and San Francisco.
The Chicago developer, which last year closed a $1.8 billion fund for projects throughout the country, decided to try its first vertical project on an 11.5-acre site it bought near a Kennedy Expressway interchange and the Chicago River. The firm said there are $2 billion in annual online purchases within a 5-mile radius of the site, an enticement for retail tenants to use such space to distribute orders onto trucks for delivery to doorsteps.
The 1.2 million-square-foot Chicago project began in August 2022 on speculation, or without leases signed in advance. Martell said interest from tenants has been strong, with e-commerce or other consumer products companies, grocers, package delivery companies and even movie production companies as potential tenants.
When completed, it will be the largest industrial space close to both the Loop business district and densely populated North Side neighborhoods.
Aside from the sheer size, the developer is betting that other attributes, including clear ceiling heights up to 36 feet and room for large vehicle fleets, will cause the facility — a pair of connected structures with two levels for product storage and five levels of parking connected to ramps — to stand out, particularly compared with older, smaller facilities on space-constrained Goose Island just across the river.
The Chicago project is nearing completion amid 6% overall vacancy nationally, far above the all-time low of 3.9% in mid-2022 but still well under the 20-year average of 7.3%, according to CoStar data.
Rents will need to come in high enough to account for the higher cost and added complexity of vertical construction.
If the property were to sit empty after completion, it could serve as a cautionary tale for developers eyeing first-of-a-kind vertical projects in other cities. If it succeeds, it is likely to spawn new vertical developments in Chicago and other markets where they’ve yet to be attempted.
Martell declined to say how much the entire project will cost, but the firm already has paid more than $55 million for the land and taken out $150 million in construction financing.
“You find these in very dense, hyper-infill locations,” Martell said. “They’re very site-specific. It’s not such a science. It’s more of an art to make sure you’re maximizing the site.”
One way of doing that is by using the sprawling rooftop for vehicle parking, as well as tapping it as a potential area for amenities, depending on a tenant's preferences. There also is an opportunity to build out large offices overlooking the river and skyline.
Many finishes, such as potential high-tech loading and racking systems, will be determined by the one or more tenants that lease the building. The project will create 135 truck courts plus 1,590 car parking stalls or 763 van parking spaces.
San Francisco-based developer Prologis built the first vertical warehouse in the United States, completing a Seattle project for Amazon in 2018. Since then, such projects have been on the rise, including 10 multistory buildings recently finished or under construction in New York City alone, according to a JLL report late last year.
Vertical warehouses come in many shapes and sizes, and they range as high as 22 stories in Hong Kong, where there are severe land constraints, according to the JLL report. That is an outlier, the report said, but it is common to see five-story warehouses in places such as China, Singapore and Japan. Warehouses in the United States with modern vehicle ramping systems range from two to five levels, according to JLL.
New multistory developers are closely studying those previous U.S. projects, Martell said.
“This is Gen 2, so we can learn from the first generation of these,” he said. “We can see where there were pinch points. We can, if we decide, have no co-mingling of cars, trucks and vans. That’s something that is huge from a safety perspective and an operational perspective. If you have a business where the public is coming and picking up packages, we can offer that, where a lot of developers in New York can’t offer that.”
Though going vertical is a modern twist, building a warehouse on the site is a return to the area’s industrial roots. The site is within a 3.7-mile-long, 760-acre stretch along the river that for decades was mostly limited to manufacturing uses while restricting other types of development such as residential.
New land-use rules adopted a few years ago opened the way for changes underway along the river, including developer Sterling Bay’s multibillion-dollar, mixed-use Lincoln Yards project, the conversion of a former Morton Salt warehouse into a concert venue, a planned Bally’s casino complex, and Canadian developer Onni Group’s plans to build thousands of apartments on and around the southern tip of Goose Island.
Logistics Property's plans to buy and redevelop its site publicly emerged in early 2022.
Martell said his firm was in competition with industrial developers to buy the Division Street site, but residential developers seemed more focused on areas such as the Fulton Market district.
As e-commerce and package delivery giants need to move ever closer to households, Martell said he believes the North Side project close to residential areas offers a compelling alternative to huge logistics facilities seen in areas such as the industrial corridor along Interstate 55 on the city’s Southwest Side.
“Our brokerage team, JLL, is on a bunch of these buildings in New York, and so we’re standing on the shoulders of what they’ve learned,” Martell said. “One of the things they say is that, in a snowstorm on Thanksgiving or Christmas Eve, can you make substantial deliveries from that location to the e-commerce customers around you? From this location, the answer is most definitely."
Other locations further away can add "an hour or an hour and a half in a high-traffic, bad-weather situation," he said. "Here, you literally could walk packages to some of those customers.”
For the Record
The developer is represented in leasing by JLL brokers Michael Conway, Dan McGillicuddy and Sam Brashler.